What is your plan for Phasing out life Insurance?

[Like2Plan]

How do you determine whether life ins is needed after retirement?

Do you model income stream/cash flow vrs expenses if one or the other partner predeceases each other?

Do you cancel your life ins if your net worth is equal to (or exceeds) the policy amount?

or other?

[dczech09]

I think one should hold a term life insurance policy until they reach a large enough of a nest egg to be self insured. I do not think retirement really enters the equation because people retire at different ages and in different ways. So retirement is a very ambiguous metric.

The way I see it is if your term life runs out and you have a sizeable nestegg- say $500,000+ - then I say life insurance probably is not necessary anymore.

To me, life insurance is about replacing income when the household does not have a sizeable nestegg to support the survivors. It is not to be used as a means to pay of a mortgage or provide a "lottery" payout.

If you have excess income and want to buy an extra large life insurance policy as an estate gift, then more power to you. However the most basic purpose for life insurance is to replace income when a death would be catastrophic to the survivors.

[mrpaseo]

dczech09, well said. I agree with your testament 100%. I plan on holding term Life Insurance until our nest egg will get us to our grave. When will that be? No one knows, I'll go with a WAG, when I feel comfortable, I'll stop it.

Ray

[MonkeyMama]

I agree with dczech09.

I am not sure why you would need life insurance in retirement, unless someone was relying on you financially. Well, that and if you didn't have the assets to pass on to them, for support. If you are caring for a young child, you may need life insurance, whereas a similarly aged spouse should be able to live out their life with your retirement savings. However, if you are relying on some sort of pension that does not pass on to your spouse, or something like that, these are just all things to consider. OF course, in the child example, maybe you only need to support them 10-20 years because they should be able to support themselves in adulthood. Different story if they won't be able to ever support themselves for some reason like disability.

We personally primarily got life insurance for our kids. I expect to cancel our life insurance policy before the end of its term (since kids will be about 30 when it expires? & we may no longer need it once they turn 18?). The end of the term is probably many years before we will even think about retirement.

[Robert742]

If you are talking about a permanent life insurance policy, you want to be careful about your decision to surrender the policy. What makes permanent life insurance a poor financial decision for many people, is deciding to cash it out. You want to consider the cash value, tax implications of cashing out versus the cost & the benefits of keeping the policy.

You may have built up a sizable nest egg, but out of pocket costs from a prolonged illness can eat that up, leaving a surviving spouse in financial distress.

If you are talking about a term life insurance policy, I would keep it going until the end of the term. If you can renew it after the term, and you think the death benefit is worth the cost, keep it going.

A retired couple, with a small nest egg, dependent on social security, can benefit a lot from maintaining life insurance in retirement, but the very reason they need life insurance -- they don't have a lot of money -- may mean they can't afford it, or their money must be spent elsewhere.

Figure out how a death and illness can impact the surviving spouse's finances, and decide whether the cost of the insurance is worth the benefit.

[disneysteve]

Originally Posted by Like2Plan

How do you determine whether life ins is needed after retirement?

if you can afford to retire, there should be no need for life insurance. You must be financially able to support yourself or else you wouldn't be retiring.

My plan for phasing out life insurance is to eliminate the need. Pay off the house. Get DD through college. And accumulate enough investments for DW to be okay without me.

[Like2Plan]

Originally Posted by dczech09

I think one should hold a term life insurance policy until they reach a large enough of a nest egg to be self insured. I do not think retirement really enters the equation because people retire at different ages and in different ways. So retirement is a very ambiguous metric.

I picked retirement age because I am retired, however DH and I still have several term life ins policies. Though to be honest I'd never thought of discontinuing life ins before retirement. I have always thought life ins was something you needed so that if one (or both) spouse dies the family does not have to take an immediate life style reduction. If you are not retired and you have to use the nest egg for basic living expenses, how will that impact your retirement savings?

Retirement age does seem like the logical time to discontinue life ins unless like MonkeyMama said you have to protect for a pension which doesn't provide an adequate survivor benefit (or for a dependent who depends on you financially.)

[asmom]

Originally Posted by Robert742

You may have built up a sizable nest egg, but out of pocket costs from a prolonged illness can eat that up, leaving a surviving spouse in financial distress.



Figure out how a death and illness can impact the surviving spouse's finances, and decide whether the cost of the insurance is worth the benefit.

This is a very valid point. A prolonged illness may not only impact a surviving spouse but a child who has stopped work to care for a parent with chronic illness or dementia. I recall a lady who was an only child; unmarried; who dropped out of the workforce and moved into her mother's home to provide 24h care as her mom had both physical frailty and dementia. Her mom's income wouldn't cover the cost of custodial care either in the home or in an institution so she basically had no choice. As the daughter explained it to me, when her mother dies she will be left destitute because she doesn't have an income now and worse, her retirement has been impacted by the fact she has not been contributing for these past few years. A sizeable life insurance policy would have eased her fears a good bit.

[Like2Plan]

Usually, life ins gets more expensive as you get older. Should future insurability be a consideration when you are dropping insurance?

[Robert742]

Originally Posted by Like2Plan

Usually, life ins gets more expensive as you get older. Should future insurability be a consideration when you are dropping insurance?

Yes, you don't want to drop life insurance in retirement if you think you will have a life insurance need in the future. You might drop your coverage at 65, but if you want to get it again at age 70, you may not be able to get it, or the cost may be too much. If you want permanent life insurance, find out the cost, decide if the cost is worth the benefit, buy it now, and don't drop it.